A government was awarded a grant from another government. The $8,000,000 grant is restricted to use for construction of a facility for one of the grantee government's enterprise activities. The grant is for half the cost of the facility. The grantor will reimburse half of the costs as they are incurred. At the end of the first fiscal year, $3,000,000 has been spent on the project. $1,500,000 has been collected from the grantor. How should the grantee's Enterprise Fund statement of cash flows report the cash inflows?

Question

Quizplus · Accepted Answer

The grant is specifically for the construction of a capital asset and therefore should be reported as a capital and related financing activity. The reimbursement of half the costs by the grantor as they are incurred is also a financing activity, as it represents a source of financing for the construction project. The cash inflows should not be reported as operating or investing activities, as they do not relate to the ongoing operations of the enterprise or the acquisition or disposal of investments.

A Government Was Awarded a Grant from Another Government